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Bubble or Correction? We Say Correction and Here's Why

Bubble or Correction? We Say Correction and Here's Why

 

Comparing apples to orangesRegardless of the market, you are going to find naysayers...and sometimes those naysayers can be "loud" and really give you pause. Lately I've heard a lot of speculation about our market 'bubble' and have done significant reading on this topic. Oddly enough, KCM posted some wonderful supporting graphics that drives my point home.

 

THE CONCERN: Are we repeating the 2006 housing bubble, with the resulting 2008 burst and another recession?

No - Today's housing market is quite different than the bubble market we experienced twelve years ago (can you believe it's been 12 years?).  These 4 points explain the differences:

  1. Home Prices
  2. Mortgage Standards
  3. Mortgage Debt
  4. Housing Affordability

 

 

1. HOME PRICES

Yes, home prices have reached and even surpassed 2006 averages in the Charlotte market. However, after more than a decade, home prices should actually be much higher, based on inflation alone.

Frank Nothaft is the Chief Economist for CoreLogic recently explained:

“Even though CoreLogic’s national home price index got to the same level it was at the prior peak in April of 2006, once you account for inflation over the ensuing 11.5 years, values are still about 18% below where they were.” 

 

2. MORTGAGE STANDARDS

Some are concerned that banks are once again easing lending standards to a level similar to the one that helped create the last housing bubble. That couldn't be farther from the truth - in fact, today’s standards are nowhere near as lenient as they were leading up to the bubble burst.

The Urban Institute’s Housing Finance Policy Center issues a Housing Credit Availability Index (HCAI).  According to the Urban Institute:

“The HCAI measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.”

Today's standards are much tighter on a borrower’s credit situation and have all but eliminated the riskiest loan products.

Housing affordability index

3. MORTGAGE DEBT

We are all familiar with the stories of the homeowners who mistakenly used their homes as ATMs in 2006, withdrawing their equity and spending it with no concern for future ramifications. They piled debt on top of mortgage debt and were unable to repay these debts when the market crashed. As above (#2) explains, the mortgage standards are far higher in 2018 than they were in 2006.

The best indicator of mortgage debt is the Federal Reserve Board’s household Debt Service Ratio for mortgages, which calculates mortgage debt as a percentage of disposable personal income.

In 2006, that ratio was 7.21%, meaning that over 7% of disposable personal income was being spent on mortgage payments. Today, the ratio stands at 4.48% – the lowest level in 38 years!

 

4. HOUSING AFFORDABILITY

Despite the fact that both house prices and mortgage rates on the rise, the housing affordability for buyers is as well. The Housing Affordability Index, released by the National Association of Realtors, provides us data reflecting that homes are more affordable now than at any other time since 1985 (with the exception of the period immediately following the bubble burst in 2008).  

Housing Affordability

 


 

 

IN SUMMARY

After reviewing the four key housing metrics to compare today to 2006, it is quite clear that the current market is nothing like the 2006 bubble market. So, let the naysayers be naysayers...the numbers tell the true story.

 

For more information on the Charlotte market or any of our local communities in the Metro region, give me a call or text at (704) 491-3310.

 

© Debe Maxwell | The Maxwell House Group | CharlotteBroker@icloud.com | Bubble or Correction? We Say Correction and Here's Why

 

     

Charlotte Real Estate Team - The Maxwell House Group

 

  Charlotte NC Homes for Sale

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Charlotte CRS Agent


Debe Maxwell, Realtor®/Broker/CRS

RE/MAX Executive

CharlotteBroker@icloud.com
Direct:  (704) 491-3310

 

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Comment balloon 50 commentsDebe Maxwell, CRS • May 15 2018 04:05AM

Comments

Loved your research, I need to do one for my market too, just to substantiate your point... in my market since the economic melt down the first three years all we had ver "all cash buyers" then when the loan buyers came into the picture they all needed 20% down and had to have great credit and real jobs... now after about seven or eight years the lenders are starting to loosen up where you do not need 20% so no bubble yet...Endre

Posted by Endre Barath, Jr., Realtor - Los Angeles Home Sales 310.486.1002 (Berkshire Hathaway HomeServices) 5 months ago

Morning Debe.

Good to know I don't have to do any research on the subject.  Our meeting starts in 6 hours, care to take a guess on one of the topics we'll be discussing?

Posted by James Dray, Exceptional Agents, Outstanding Results (Fathom Realty AR LLC) 5 months ago

We got much the same research the other day....agreed ! 

Posted by Sally K. & David L. Hanson, WI Realtors - Luxury - Divorce (EXP Realty 414-525-0563) 5 months ago

Good morning Debe. A correction for sure, a bubble not happening now! Enjoy your day!

Posted by Wayne Martin, Real Estate Broker - Retired (Wayne M Martin) 5 months ago

I hate when the naysayers are loud and people start following them, it truly is what is wrong with the world, too many negative perceptions of everything.

Posted by Brian England, MBA, GRI, REALTOR® Real Estate in East Valley AZ (Arizona Focus Realty) 5 months ago

Debe, we hear rumbling about another crash, but the difference in Denver is, our economy is very strong.  Great explanation for your Charlotte market.

Posted by Joan Cox, Denver Real Estate - Selling One Home at a Time (Metro Brokers - House to Home, Inc. - Denver Real Estate - 720-231-6373) 5 months ago

Yes, agreed, Endre Barath, Jr. and I know your market is just as hot as ours...if not hotter out there!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

LOL James Dray - each market is a bit different but, we are pretty much in-line with national averages, if not a bit higher. I prefer to think of an impending correction - we need those - as opposed to a bubble burst!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

You simply can't argue with the data - yes, you can 'spin' data but, these are the hard, fast numbers and facts of today's market!

Happy Wednesday, Sally K. & David L. Hanson!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Of course we're on the same page, Wayne Martin!!

Have a wonderful Wednesday! 

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

I totally agree, Brian England! Even during the recession when folks asked me how business was, "Great!" was always my response. I was ALWAYS busy - I made sure of that so, it truly was 'great' for me.

Did I enjoy short sales? Meh, not so much but, it was helping folks avoid foreclosure so, for that reason itself, it made all of the hastle of doing them, meaningful to me! It's all about the way you approach life, I guess!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Ours as well, Joan Cox - we are very blessed in our markets to have such thriving economies, for sure!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Hi Debe, I really appreciate seeing the proof. I too wonder what our market data would look like? I'm assuming it will be quite similar. I totally concur with  your comment in #11. We do what we can to help. That's the bottom line. D 

Posted by Debb Janes EcoBroker and Bernie Stea JD, REALTORS® in Clark County, WA (ViewHomes of Clark County - Nature As Neighbors) 5 months ago

Well, thank you, Debb Janes EcoBroker and Bernie Stea JD! It absolutely is the bottom line - and a huge contributor to our 'loving what we do' mentality too!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Very well done.  Useful information!  Keeps the anxiety levels down!  Thanks

Posted by John Henry, Residential Architect, Custom Home Design (John Henry Masterworks Design International, Inc.) 5 months ago

Awesome Post

Posted by Nikkia 5 months ago

Very clearly put, no bubble on the horizon, just active sales and plenty of buyers demand driving up housing values.

Posted by Ellen Caruso (Daniel Gale Sotheby's International Realty) 5 months ago

Love this post! Very informative and smart thinking. I'm working on getting the facts for my area now. It takes a lot of research and facts are important.

Great job!

Posted by Patricia Feager, Selling Homes Changing Lives (DFW FINE PROPERTIES) 5 months ago

People with no to little understanding of how the housing market crashed often misunderstand where we are now. They think the only that matters is rising prices. Prices can continue to rise and there will be no crash for precisely the reasons you stated. How can you be belly up when you have 100% equity and no mortgage, LOL?

Posted by Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents, Put 40 years of experience to work for you (Lyon Real Estate) 5 months ago

That is so true, John Henry - knowing the facts always helps avoid stress...or at least, address it head-on!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

@Nikkia - Thank you!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Ellen Caruso - Absolutely! There's a big difference and it's concerning when those in our own profession project that this is a bubble! It just seems crazy to me! 

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

YES, they are Patricia Feager! The consumer deserves to have a full understanding of our individual markets. We are not always (or rarely) on target with national averages!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

As I mentioned above, Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents, it's difficult to believe that those in our profession are 'predicting' a bubble burst...in our 'near future!' Clueless, I say, totally clueless!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

This is excellent information to share with prospective home buyers.

Posted by Roy Kelley, Roy and Dolores Kelley Photographs (Realty Group Referrals) 5 months ago

Debe Maxwell, CRS is indeed the kind of professional the consumer should work with to handle their real estate needs.

Debe, it is so important to know the numbers, for they show us a glimpse of reality. What a great post you have put together to show us where we are in the market.

Thanks

Posted by John Wiley, Lee County, FL Real Estate GRI, SRES,GREEN,PSA (Right Move Real Estate Group- EXP Realty) 5 months ago

Debe- you've written an excellent clarification of the market and where it is and isn't headed. Thankfully, we're not seeing the frenzy that existed back then. I can remember looking at a little community north of Naples back in 2007.  I'd bet that 90% of the homes were listed and those were all investors. Not seeing that today. .

Posted by Kathy Streib, Home Stager - Palm Beach County,FL -561-914-6224 (Room Service Home Staging) 5 months ago

Very well thought material. I am a bit surprised and envious at the same time, as we are not talking about any bubble in our market. And we would love to :)

Posted by Jon Zolsky, Daytona Beach, FL, Buy Daytona condos for heavenly good prices (Daytona Condo Realty, 386-405-4408) 5 months ago

Debe

This is excellent, with plenty of good data, easy to understand graphics, and solid analysis as a rebuttle to a bubble. Great read for all, but especially those who might be concerned.

Jeff

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude (Solutions Real Estate ) 5 months ago

                                                       

       Thank you Debe!

Posted by Kathy Streib, Home Stager - Palm Beach County,FL -561-914-6224 (Room Service Home Staging) 5 months ago

This time around it doesn't feel anything like last time.  No bubble bursting on Maui as there's just not enough homes and prices keep going up because they can.

Posted by Georgie Hunter R(S) 58089, Maui Real Estate sales and lifestyle info (Hawai'i Life Real Estate Brokers) 5 months ago

Good morning Debe Maxwell, CRS,

What an excellent post! Extremely well reserached and makes way too much sense. I 'm not sure how I missed this post. There will always be naysayers whom I avoid like the plague. You have once again been a voice of reason backed up by solid data and an analysis as a rebuttal to those saying we are in a bubble. I'm so glad Kathy Streib featured in her "Ah Ha" moments for the week. The AR Gods are snoozing..it should have a gold star!

Posted by Dorie Dillard CRS GRI ABR, Serving Buyers & Sellers in NW Austin Real Estate (Coldwell Banker United Realtors® ~ 512.346.1799) 5 months ago

Excellent article!

Posted by Ricardo Mello, Manhattan & Miami Real Estate Agent (Manhattan Miami Real Estate) 5 months ago

Debe Maxwell, CRS  I agree home prices were escalating at a much faster pace also .Great article

Posted by Hannah Williams, Expertise NE Philadelphia & Bucks 215-953-8818 (Re/Max Eastern inc.) 5 months ago

I hope we never get back into the scenario that led to the bubble of 2006.

Posted by Sybil Campbell, REALTOR® ABR, SFR, SRES Williamsburg, Virginia (Long and Foster REALTORS® 5234 Monticello Ave Williamsburg, Virginia) 5 months ago

Excellent post and information! I'm so glad Kathy shared it. It's certainly reassuring to those of us not in the know!

Posted by Sharon Tara, New Hampshire Home Stager (Sharon Tara Transformations) 5 months ago

Thank you so much, Roy Kelley! Reading naysayers thoughts on this topic prompted this post! 

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Thank you so much for your kind words, John Wiley! I'm a bit of a numbers geek so, it was fun doing the research on this one!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Thank you, Kathy Streib and no, we're not seeing anything like that these days here either, thank goodness! 

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Hi Papa Jon Zolsky, Daytona Beach, FL! I am so surprised that investors and second home buyers aren't snagging everything in sight there. Your area is just so beautiful!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Thank you, Jeff Dowler, CRS! You know, people read national news and think it applies to their area as well. Like you, we're not that 'national average' - nor have we ever been!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Thank you so much, Kathy Streib! It's such an honor to land on your weekly feature list. Thank YOU for putting this together each week!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Same here, Georgie Hunter R(S) 58089 - we count our blessings every day, for sure!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Thank you so much, Dorie Dillard! I had to chuckle at your AR Gods snoozing comment - hadn't heard that phrase in a while! LOL

Happy Wednesday!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Well, thank you so much, Ricardo Mello! I hope you have a wonderful Wednesday!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Yes and people were buying homes that shouldn't have been able to as well, Hannah Williams! I'm so thankful there's no bubble - I don't ever want to go through that again!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Sybil Campbell - Oh, gosh, me either! I cannot imagine - we made it through and were stronger because of it but, then the online companies came through even stronger as well. I don't know what would happen to our profession if we had to endure another one at this point in time. Thankfully, we're in much better shape now than we were then!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Thank you, Sharon Tara! I'm honored to have made it on Kathy's list!

Happy Wednesday!

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Quarterly Housing Affordability Index numbers just released:

 

Quarterly housing index

Posted by Debe Maxwell, CRS, Charlotte Homes for Sale - Charlotte Neighborhoods (www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310) 5 months ago

Not sure on this one. Sooner or later it will drop. It’s difficult to deny the severe housing shortage in most markets especially here, in  Los Angeles. The housing prices are also the highest ever, not a lot of buyers can afford to buy a home. Things are messy on many levels, both buyers and sellers are very careful... With the increase in interest rates, the partial non deductibility of interest and taxes(etc.), the overall cost of ownership is going up.... i hope, we'll see some incentives soon for home owners, in that case, we might see more houses for sale, price correction and buyers out of the fance. 

Posted by Inna Ivchenko, Realtor® • Green • GRI • HAFA • PSC Calabasas CA (Barcode Properties) about 2 months ago

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